INSIGHTS

On March 16, 2011

The Strategic Times: Disaster in Japan

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With the dire events still unfolding in Japan, there has been quite a varied reaction from the world. The sell off in the Nikkei market is to be expected, as is the reaction of the Yen, considering their prior set of circumstances due to the earthquake.

As outlined in this edition of The Strategic Times, there is much to be concerned with in the recovery efforts; first and foremost is the containment of the nuclear radiation leaks and providing basic necessities to those areas hit hardest. The nuclear situation is a game changer versus measuring this catastrophe to prior ones in the modern era. Without containment, it creates a large inhospitable area for a country already constrained by its geography. However, that is several steps down the road from where we are now. The humanitarian aspect is front and center; nothing can progress without this being stabilized.

The unfortunate and tragic events that have struck Japan are a reminder to all about the need for diversification. As we have witnessed in past natural disasters, the initial reaction can be severe and disjointed. After the Kobe earthquake that occurred on January 17, 1995, the market sold off 24% over the following 5 months. It then rallied 56% over the next 12 months.

Past events may not provide us much of a plan for how this will unfold. The nuclear fallout will weigh heavy in the short term and have potentially long-term negative impacts due to the heightened nature of the clean up and irreversible potential impacts. There is one thing that we do know from past disasters such as this: the human resiliency should not be mitigated. We would expect the short-term trends to stay in place and look for entry points into Japanese equity markets over the next month or so.

The impact on the global arena has already been digested and appears to be somewhat muted, considering the magnitude of the natural disaster. Though, the quantifiable impact – financially speaking – is still a fluid measure and will surely cover the spectrum from panic to understatement.

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